It's not just money-center banks, hedge funds and investors who follow the money. Big conglomerates go where the money is too. And right now, that is in oil and gas. In a “chilling” new scenario, GE, for one example, is getting more active in the U.S. LNG export industry. GE Oil & Gas, which is on a fast-growth track for the parent company, announced it is fueling Cheniere Energy’s Sabine Pass LNG plant on the Louisiana coast at the Texas border. It will supply gas turbines to power the facility’s first two liquefaction trains. These two trains need about 1 billion cubic feet per day (Bcf/d) of gas. The plant is supposed to go into service by year-end 2015.

GE has been remaking itself over the past two years under a broad strategy to shift away from consumer products to focus on the big industrial, medical, electric--and energy--sectors. In its latest move, the conglomerate announced it will sell its appliance business to Sweden’s Electrolux brand for $3.3 billion. However, the same week it announced this divestiture, it unveiled the Cheniere deal. GE is active in LNG projects around the world.

It’s no wonder conglomerates are paying attention to opportunities in energy generally, and LNG specifically. LNG exports from U.S. shores are set to begin to grow significantly beyond 2017, possibly reaching 6 Bcf/d by 2020, according to a recent gas update from Bernstein Research.

What is more important to the exploration and production (E&P) universe, however, is this nugget from the report: “Over the past five years, gas has consistently traded below marginal cost, even at low or normal storage levels, indicating producers on the high end of the cost curve destroyed value seeking growth.”

Which brings us to one of our favorite subjects, the future of natural gas demand. Investors and E&P executives continue to be wary of what oil prices will be, thanks to the production surge—North Dakota already produces 1.1 million barrels a day--but the outlook is less clear on natural gas. I am starting to hear a more positive tone regarding the gas outlook, offsetting the bears. The problem is, numbers are based on long-term forecasts of increased use by industrials, coal-fired power plants throwing in the towel and switching to gas, and finally and most important, LNG exports.

The future might turn out to be bright, but that doesn’t help this year and next. Production keeps surprising to the upside. For example, a January 2013 Barclays report forecast that the growth in U.S. natural gas output would slow in 2013 to just an incremental 180 MMcf/d year-over-year. In fact, production rose by another 810 MMcf/d.

Subsequently, Barlcays reported, "The relationship between drilling activity and natural gas production seems to have broken com- pletely. For the third year in a row, in 2013 production continued to grow despite a drop in gas-directed drilling … Lower 48 dry gas production dropped … but it grew in the Marcellus, Utica, Bakken and Eagle Ford.”

Simmons & Co. International now expects 2015 prices to stay below $4, and thinks gas production will grow 3.5 Bcf/d this year and another 2 Bcf/d next year.

Bernstein Research just brought its 2015 gas price down from $4.50/Mcf to $4 and leaves it there through 2016. It also models a supply hike of 3 Bcf/d in 2015. Equally concerning, it sees limited growth in domestic demand, with residential and commercial gas demand flattish, and power and industrial demand growing by about 1 or 2 Bcf/d per year “for the next few years.”

To put all this into perspective, Marcellus-Utica output has increased by more than 4 Bcf/d so far this year, offsetting declines else- where such as in the Haynesville Shale. The EIA said production in the Marcellus-Utica was at 15 Bcf/d in July, with the Utica now reaching 1.4 Bcf/d and that by October, the Marcellus- Utica combined will be at 17.5 Bcf/d.

Overall, U.S. production rose 4.1 Bcf/d in first-half 2014. If oil prices stay strong, even more associated gas is on the way from the Bakken, Permian and Eagle Ford.

Individual companies and joint ventures alone in the Utica could top analysts’ current forecasts for the entire play. The joint venture of EnerVest, Chesapeake Energy Corp. and Total will be producing 800 MMcf/d out of the Utica by the end of this year, according to EnerVest chairman John B. Walker, speaking at our A&D Strategies & Opportunities Conference recently.

Gastar reported its first Utica-Point Pleasant well recorded more than 29 MMcf/d over a 48-hour test, and on Magnum Hunter Resources’ 18-well Stalder pad, its first Utica well tested 32.5MMcf/d. Higher flows are expected soon on its West Virginia pads.

At press time, the Ohio Department of Natural Resources reported 504 horizontal wells in the Utica-Point Pleasant play and overall production of 103.5 Bcfe to date.

And in the Bakken Shale, natural gas production in July reached 1.3 Bcf a day, an all-time high.

Natural gas closed on Nymex at only $4.08 for the three-year close. But in the oil and gas business, hope springs eternal--as does out-spending cash flow.

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